Equity sharing

When a university spinout company is created the sharing of equity is agreed between the founder researchers and the University. New arrangements for equity sharing are being implemented from September 2021. This policy aligns with the TenU USIT Guide and the recommendations in the Government's independent review of university spin-out companies. A review will be carried out after three years to check for any anti-dilution issues.

This page explains why the policy is being introduced and what it means for new spinouts and for those already in the process of being created.

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The new policy sets the founding equity share in spinout companies at 80% for founder researchers and 20% for the University in nearly all cases. There are some conditions under which the split will be 90% for founder researchers and 10% for the University.

The policy has been changed in support of the University’s aim to foster innovation and entrepreneurship in order to maximise the global impact of the University’s research and expertise. It provides upfront clarity to researchers and investors about how equity will be shared. It gives a visibly low equity stake for the University, which enables the spinout to incentivise founder researchers and attract experienced management teams and investors. It removes the need for case-by-case negotiation which will make spinout formation faster, easier and more transparent.

The new equity share aligns with the current average share taken by the University: in 2020, both the mean and median figures were 20%.

The policy is now in operation. The University has asked Oxford University Innovation (OUI) to apply the new policy to the formation of all spinout companies that are preparing for completion, presuming that the researchers are content with this arrangement. 

The new equity policy will apply. The University has asked OUI to not start any new equity discussions for new spinout projects under the old framework.

Spinouts in formation process can shift to the new equity policy at any point up to completion, even if there is already a Deal Sheet 2 in place and signed. It is up to the founder researchers to decide whether they would like to move to the new policy or to continue with arrangements already agreed. OUI will support the spinout process either way. Spinouts in formation that wish to stay with the old equity policy will not be compelled to switch at a later date, even if it takes a long time to complete.

Spinouts that have already completed with shares issued will not be able to retrofit to the new rules. 

80% to the founder researchers is appropriate in most cases where the University has enabled the creation of relevant patents or patentable intellectual property, and/or has provided support through infrastructure or salary or student or researcher support.

90% to the founder researchers is appropriate in the less frequent scenario when a spinout is created in the absence of any support from the University in terms of infrastructure, salary, students or researchers, and where there is no patented or patentable intellectual property.

If the researchers decide to include external individuals who are not University employees as members of the founding team (for example as a CEO or other key post in the company), those individuals will share in the 80% or 90% that the researcher founders will receive at formation. This includes the issue of shares or the creation of option pools for management teams at formation prior to any funding round. The University will be diluted along with all other shareholders by any subsequent option pool that is put in place after a funding round for employee incentives.

Where the University is required to share any part of its institutional founding equity with a third party funder, this reduction of the founder equity held by the University will normally be borne pro-rata by the University and the founder academics.

Where the spinout includes external institutional founding shareholders (for example other universities) and potentially individual founders associated with such institutions, OUI and the University shall work with such parties to agree a founding equity allocation that fairly reflects the relative contributions (both past and future expected) of such parties to the company in question. This may require variation from the policy that applies where the University is the sole founding institution involved.

The spinout will still require a fee-bearing licence. All Oxford IP to be licensed to the spinout at inception will be offered to the company on the terms of the Oxford University Express Spinout Licence. If the spinout chooses not to take the Express Spinout Licence then OUI will negotiate an alternate licence agreement with the spinout.

Any Oxford IP that is not declared by the founding academics at company inception and that the company subsequently wishes to licence from the University will be subject to negotiation of appropriate commercial terms and will not be licensed under the terms of the OUI Express Spinout Licence.

The University’s overarching aim for innovation activities is to maximise impact. Financial return is not the primary goal. Nevertheless the University must be financially sustainable and, as a charity, is obliged to balance individual incentives with receiving an appropriate return for commercialising its charitable assets. Retaining some of the returns from the successful ventures enables the University to provide financial resource to its charitable activities.

In the event that shares are sold or produce other financial returns such as dividends, any returns are used by the University to support departments, invest in strategic research and innovation projects (through the Strategic Research Fund and John Fell Fund) and provide all University members with innovation support services, many of which will not generate a financial return. Larger amounts have been crucial in the past in enabling the University to build and maintain its buildings and research infrastructure, and will continue to support capital projects through the Capital Fund. Details can be found in the Council Regulations 7 of 2002

Anti-dilution provisions will not apply. The University will take ordinary shares and will be diluted along with other founder shareholders as investment comes into the company.

Yes, the University will monitor the success of the spinout equity policy by looking at numbers of companies formed and the company valuations achieved. 

To ensure that the University continues to receive appropriate returns to invest further in research, it is expected that companies will raise investment at valuations which are at least comparable to those achieved before the policy change. Over time, it is hoped that additional activity facilitated by the new policy will drive a gradual increase in company valuations. 

There are a number of options for those staff who wish to spend time founding and developing University spinouts. The most appropriate option will depend on the circumstances, including the period and proportion of their time that an individual wishes to spend working on the University spinout.

Options include:

  1. Using the 30 days per annum allowance for consultancy and other paid outside appointments
  2. Taking sabbatical leave
    Those holding qualifying academic posts (Statutory Professor and Associate Professor) should use any accrued but untaken sabbatical leave before considering seeking a buyout. 
  3. Variation of duties
    Those who hold Associate Professor posts who wish to spend a proportion of their time establishing a University spinout can seek to vary their duties through the existing scheme.
  4. Innovation Leave Scheme for University spinout founders
    This is where a spinout funds a buyout for a spinout founder from all or part of University duties for a defined period of time (up to one year).
  5. Seeking approval for a permanent change to part-time working hours
  1. Providing a new mechanism for consultancy returns to departments for individuals consulting to spinouts. The consultancy fee structure gives the department the 10% fee in the first year and 5% after that, via Oxford University Innovation (OUI). 
  2. Cash option – Oxford Science Enterprises (OSE) is offering a cash option in lieu of department revenue shares from the equity sale on a funding round.

University of Oxford

Dr Olga Kozlova: olga.kozlova@admin.ox.ac.uk

Oxford University Innovation
Dr Mairi Gibbs: mairi.gibbs@innovation.ox.ac.uk